The Supreme Court has upbraided disparities between the price to retailer (PTR) and the maximum retail price (MRP) of certain drugs, including those used to treat cancers, in some instances up to 1,000%. These drugs are not available over-the-counter, so hospitals often control which brand a patient uses. As a result, pharmaceutical companies compete for the hospitals’ business, not patients’. To incentivise a hospital to stock specific drugs, they deliberately specify inflated MRPs while offering the hospital low PTRs, and the hospital can pocket the difference. The practice does not technically amount to a kickback but is one economically, as manufacturers effectively promise hospitals an embedded financial reward to pick specific products, and leave patients to potentially pay more than the medicines’ supply price because hospitals have an incentive to sell brands with the largest margins. When private hospitals also force patients to purchase drugs from on-premise pharmacies — as Competition Commission investigations have established — patients are unable to shop around, undermining normal price competition. So, more affordable equivalent drugs are disadvantaged because of their lower revenue generation potential for hospitals. Patients, meanwhile, face severe financial strain — a concern also flagged by drug regulators in Karnataka and Maharashtra — and could, among those with cancers and chronic conditions, reduce adherence to longer treatment regimens.

The practice arises from a gap in the 2013 Drug (Prices Control) Order, which caps the final maximum price of scheduled drugs, but not the markup on hospitals’ transactions. Say the National Pharmaceutical Pricing Authority (NPPA) calculates the market-derived average price of such a drug to be ₹100, making the ceiling ₹116. If a hospital negotiates a PTR of ₹50 from the manufacturer, it can still sell the drug (or bill the government if a drug is state-financed) at ₹116, without breaching the ceiling, and enjoy the difference of ₹66. In a proof-of-concept exercise in 2019, the NPPA capped the trade margins of 42 non-schedule anti-cancer drugs at 30%. The Department of Pharmaceuticals subsequently said prices of 526 brands dropped by up to 91%, suggesting that the MRPs of several cancer drugs included compressible margins. Second, while the Court’s suggestion to have a fixed percentage markup across all drugs is appealing, it should accompany a regressive margin that applies a smaller percentage as drug prices increase, to neutralise sellers’ incentive to favour more expensive products. Overall, however, the Court is right to highlight this insidious problem, especially after refusing to intervene in Siddharth Dalmia (2025), and while the Union and States have failed to counterbalance the absence of natural market mechanisms to rationalise drug prices.